Market capitalization, also known as Market Cap, is one of the most reliable indicators of a company's size. It is determined by multiplying the price per share (of stock) by the total number of shares outstanding. It's a well-known metric for conventional securities, but it has some interesting consequences for cryptos.
Market Capitalization
The market capitalization of a security is an indicator of its worth. The number of outstanding stock shares is normally multiplied by the current stock price. It's known in crypto as the total supply of tokens multiplied by the current price. A coin with 100 tokens in circulation and a market cap of $1000 has 100 tokens in circulation and is selling for $10 each.
Circulating Supply, Total Supply, and Max Supply
Circulating Supply is the best estimate of the number of coins circulating in the market and in the hands of the general public. It refers to the amount of units of a particular currency that are currently available on the market. Given that some of the coins could still be owned (and therefore not in circulation) by the currency's creators, it may be less than the total supply.
Total Supply refers to the total number of coins in circulation at any given time (minus any coins that have been verifiably burned).
Max Supply is the best estimate of the maximum number of coins that will ever exist in the cryptocurrency's lifetime.
Market capitalization is more important than price
Market capitalization typically indicates the level of investment risk. When the market capitalization of a company grows, it is divided into three categories: small cap, mid cap, and large cap.
The risk of investing in large cap firms is smaller. However, once a business reaches a certain size, its growth potential is limited.
Because of the probability of business collapse, small cap businesses are generally riskier. When they succeed, however, they reward early investors handsomely.
Market cap may also be used to create snapshots of business or cryptocurrency groups. For example, measure the market capitalization of all the companies in a given sector (technology, retail, manufacturing), then add them all together. This gives you the sector's market capitalization.
Do the same thing with a group of cryptocurrencies. Calculate the market caps of the privacy coins, for example, and add them all together. This figure depicts the market value of the privacy coin room.
Testing market capitalizations will teach you a lot about cryptocurrency. A coin's market capitalization will show whether it is immune to volatility or vulnerable to it. When big news hits the market or "whales" (large buyers) take positions, coins with small market caps rock harder. That isn't shocking, considering that the crypto markets are among the most volatile in history. Holders of small-cap tokens, on the other hand, risk being crushed by larger traders. The price of a token will crash to zero in an instant if many whales conspire to sell at the same time. With Bitcoin and Ethereum, which have high volume and are difficult to manipulate, this will be much more difficult.
With huge rises in their respective market caps, Bitcoin and Ethereum made mainstream headlines this year. They, along with Litecoin, Coinbase's third coin, have all seen recent gains. Customers with US bank accounts would be able to make instant transactions, which had previously been prohibited. With this news, the market capitalizations of all three coins increased.
Market capitalization is a form of fundamental analysis used in stock market investing. Fundamental analysis aims to quantify a company's worth in order to predict potential rewards. This approach is based on long-term thought and seeks to increase the value of an asset over time.
Conclusion
The market capitalization of a cryptocurrency is both a fast way to measure a coin's value and a lot more than that. A strong coin has a healthy market cap, but developers or whales keeping coins can deceive. Until making an investment decision, consider the market cap in conjunction with some of the other metrics.
